Crude Summit: Producers will react to price - Hamm

OREANDA-NEWS. US producers will react quickly to lower crude prices by delaying final completion of shale wells and minimizing marginal output, Continental Resources chief executive Harold Hamm said.

Hamm, speaking at the Argus Americas Crude Summit in Houston, Texas, said public companies must react quickly to lower crude prices because of pressure from public markets.

"You are limited in what you can do if you do not conserve cash," Hamm said, pointing to billions of dollars in industry-wide capital expenditures announced in recent weeks. "It is making everybody do exactly the same thing."

US producers are choosing to defer well completions, which account for about 60pc of total well costs, amid a projected 20-30pc drop in service costs, Hamm said.

"Avoid selling that production in poor markets and allow service costs to fall before selling that oil," Hamm said. "Most people are doing that."

"You can shut in production to conserve reserves. Operators do not have to sell [the oil]," he told attendees.

Hamm added that Continental projects a 50pc reduction rig count reduction in the Bakken and Eagle Ford shales would result in about a 500,000 b/d oil output reduction from where production was otherwise headed by mid-2016. Actual production in that scenario would flatten by March and begin dropping in May.

"All they have to do is see that graph [of declining output]," Hamm said. "That is going to become obvious maybe by mid-2015 or before."

Hamm added that onshore shale producers need somewhere around \$70/bl oil to drill, but estimated that once a rebound occurs it may be north of \$80/bl, allowing Continental and others to start adding rigs again.

"We will be walking a fine line between supply and demand coming out of this," Hamm said. "I think people will add rigs, but they need to do it in a more methodical manner than they did [after the financial crisis] in 2008-2009," Hamm said. "[Drilling] will not just instantly spring out of it."

According to service company Baker Hughes, the US rig count fell by 43 last week to 1,633, its lowest level since the early days of the post-recession shale boom in August 2010. The total figure, led by land rigs, was down by 8pc from year-prior levels.